Being customer focused takes pull

At a much lower cost to the manufacturer, demand-based flow manufacturing delivers quality performance for customers.

Many manufacturers are successfully using a high-velocity supply chain concept called demand-based flow manufacturing. In contrast to more traditional methods, demand-based flow manufacturing cuts cycle time while providing unmatched flexibility.

In a demand-based flow manufacturing environment, inventory is pulled through each production work center only as needed. This means the entire supply chain must be configured for maximum flexibility and quick response in order to fill irregular or custom orders as quickly as a standard item.

The demand-based pull of material through production is in sharp contrast to the traditional push production process, which is driven by a schedule that often just pushes inventory into stock and may not reflect what customers want. Worse, push production typically cannot quickly adjust for sudden shifts in customer demands resulting in longer cycle times and too much inventory.

According to R. Michael Donovan, an international management consultant of R. Michael Donovan & Co., Natick, Mass., "Demand-based flow manufacturing is a supply chain management strategy that is customer-focused to fill orders promptly and accurately. This means that information and material must be synchronized and flowing at high velocity and both must be of high quality."

"Because of today's more powerful system enablers, demand-based flow manufacturing can achieve significant cost savings," points out Donovan. However, he thinks the main thrust of demand-based flow manufacturing should be revenue growth by developing a competitive strategy that is focused on customer service to increase marketshare.

Also, demand-based flow manufacturing can be used in production environments involving highly complex and variable products, even engineered-to-order situations. "It doesn't have to be a highly repetitive, mass production environment to achieve synchronization and high-velocity flow in information and material," Donovan notes.

With demand-based flow manufacturing and today's systems technology, product complexity and variability does not pose the barrier it once did to creating a flexible order fulfillment process. In fact, today's marketplace now requires high-velocity supply chain performance. Customers will change suppliers when they are unable to get the goods they want in the response time they need. "The objective," Donovan says, "is to get today's order produced and shipped without yesterday's orders stopping the flow."

Another important difference between pull and push production processes also revolves around customer service. Demand-based flow manufacturing shifts the emphasis to flexibility and throughput with total order-to-delivery cycle time reduced to an absolute minimum. As a consequence, successful implementation relies on more far-reaching cultural, process, and organizational changes. Typically this requires substantial reengineering of the entire order-to-delivery process.

A company that can benefit from demand-based flow manufacturing is usually easy to spot. In these firms, inventory accumulates in buffer stocks, which is both a sign and a cause of excessive cycle time. In addition, these companies often show serious balance and flow problems caused by bottlenecks and poor information flow. The results of these difficulties is excessive inventories in subassemblies, raw materials, and work-in-process. Finally, scheduling and re-scheduling in these environments is often a constant and unresolved nightmare.

According to Donovan, today's demand-based flow manufacturing environment requires more enter-prise-wide systems integration and a much higher level of information quality compared with the MRP era of the 70s and 80s. Manufacturers who pull together all of the isolated islands of the business with demand-based flow manufacturing processes experience cycle time reductions of 60% or more. The process also drives down heavy costs resulting from imbalanced production schedules, excessive work-in-process, WIP queues, and the high fixed overhead costs that come from trying to manage operations in chaos.

Donovan cites an example of a leading company that cut cycle time by 80%, reduced required factory space by 50%, and slashed rework by 90%. The average working capital needed to support the business dropped by over 50% over a two-year period, permitting other investment opportunities.

With demand-based flow manufacturing, equipment changeovers need to be reduced to achieve better flow and balance of material through fabrication and assembly. In some cases, a company might consider installing smaller machines in place of older "monument" machines popular in the large-batch, mass-production days. "The capital cost can easily be justified if changeover times are cut by 90%-which is often possible with more agile equipment," Donovan observes. "Remember, it's not just labor and inventory costs that are saved by higher throughput and reduced cycle time. Customers are more satisfied and revenues are favorably impacted. That's where the money is."

It is not at all unusual for demand-based flow manufacturing to deliver huge productivity gains, with dramatic decreases in cycle time and inventory. However, the advantages go beyond just these issues. Because the new system enablers can link together the entire enterprise, as well as the entire supply chain, redundancies are eliminated improving administrative productivity.

Other advantages exist. Orders can be processed without adding layers of paperwork that often wait in queues, sometimes with un-known or uncertain priority. New administrative techniques can also be used. For example, completed products can be backflushed to decrease inventory balances. Likewise, checks can be automatically cut and mailed to vendors based simply on that day or week's count of units consumed at the plant but still owned by the vendor. Basically, demand-based flow manufacturing is a technique that can successfully minimize working capital requirements.

This process methodology is not achieved by just installing software. However, getting all the pieces of the puzzle to come together in the right way requires that high-quality, accurate, and up-to-date information flow into and through the business each step of the way. Advanced ERP systems, as well as electronic enterprise linkages, allow the productivity gains from improvements in inventory deployment and reduced cycle times to improve every function of the business. Also, process and information quality are improved by eliminating all of the human interventions that confuse the overall process. "When you have too many manual interventions and/or variations, the problem is not just cutting out non-valued added activity but also eliminating the value-subtracting activity caused by errors that are often repeated everyday," says Donovan.

In companies with poor customer-service performance levels, poor quality information is often one of the culprits. It's not uncommon to find wrong product specifications on orders, part numbering errors on the bills of material, and inaccurate inventory records. In many cases, manufacturers often rely on suppliers that ship late.

To be successful, demand-based flow manufacturing requires close coordination with suppliers whose own processes and systems may need to be upgraded because subpar performance will also affect the manufacturer's performance.

"Demand-based flow manufacturing," Donovan claims, "is only as good as its weakest link." Donovan cites the case of a company whose service level at distribution centers improved from 77% to 88% as a result of traveling part of the way towards full demand-based flow manufacturing implementation. But so far the company has missed the chance of hitting a 98% or better service target because of one supplying plant that continues to operate under the old unreliable and less flexible "push" method of production. However it's now clear, as a result of the much improved performance at the other plants, that a change in the poor-performing plant to demand-based flow manufacturing is inevitable.

Choosing to invest in demand-based flow manufacturing is not a difficult decision if it is viewed as a competitive strategy for revenue and profit growth.

Demand-based flow manufacturing as a competitive strategy

Customer wants

Manufacturer needs

Product

Make what customer wants

Quality

Process capability

Price

Low cost

Responsiveness

Short cycle time

Dependability

On-time delivery

Confirmed results of demand-based flow manufacturing

Using lean manufacturing, parts are manufactured synchronously and delivered on-time. This frees manufacturers from maintaining costly inventory representing significant carrying costs and provides the flexibility to be competitive.